Why you should get a HELOC in 2024
There are many reasons you might need extra cash in the new year. You might get hit with unexpected medical bills or your car may need repairs. You could even lose your job or suffer some other financial setback.
Whatever the reason, if you're a homeowner, having a HELOC — or home equity line of credit — on your side could be the answer. There are many reasons why a HELOC could be beneficial for you, but particularly in the upcoming year. Below, we'll break down some major reasons why you should consider getting a HELOC in 2024.
Start by exploring your HELOC options here to see what you may be eligible for.
Why you should get a HELOC in 2024
Do you own a home? Here's why you might want to get a HELOC in 2024.
Credit card rates will likely remain high
The Federal Reserve has increased its federal funds rate 11 times since early 2022, and that has sent credit card rates soaring. In fact, the average interest rate on credit cards is now over 21%.
While the Fed has indicated no plans to hike rates as aggressively in the new year, it has said it will keep rates at their current range for the foreseeable future or until inflation is fully tamed. Unfortunately, that means credit card rates are likely to remain high for a while.
Not only does that mean putting charges on a credit card will be costly in 2024 — but paying off existing credit card debt will be expensive, too.
Luckily, HELOCs tend to have much lower rates than credit cards (in November, the average on HELOCs was just over 9%.) So, if you have credit card debt, a HELOC might offer a smart way to pay it off without suffering those sky-high, double-digit rates. It could also help you pay off the balance much sooner.
"HELOCs can offer lower interest rates compared to credit cards and other high-interest debt," says Seth Bellas, branch manager at Churchill Mortgage. "The key is to use a HELOC to pay off high-interest debt, then make regular payments on the HELOC to avoid accumulating new debt."
Explore your HELOC interest rate options here now.
Cash-out refinances probably won't be an option
Because the Fed is keeping rates high, mortgage rates are likely to stay elevated, too. Currently, they clock in at well over 7%, according to Freddie Mac.
While many homeowners would often use a cash-out refinance to cover home repairs and other renovation costs affordably, that's not as smart of a decision in a rising-rate environment. In fact, if you got your mortgage in 2020 or 2021 (or refinanced then), you could have a rate of 3% or less. And getting a cash-out refinance next year? That could mean trading in your very low rate for a significantly higher one.
"If you have an ultra-low fixed rate on your current mortgage and are not looking to take out too much money, a HELOC maybe a good option," explains Jeremy Schachter, a loan officer at Fairway Independent Mortgage Corporation.
There could be a recession
Since HELOCs allow you to withdraw money as needed (and pay it back and withdraw again, too), they can act as a smart financial safety net. This could be helpful if we enter a recession come 2024, which is possible, although not as likely as many predicting earlier in the year.
Still, should that occur, and you lose income or your job as a result, you could use the HELOC to get by while you get back on your feet. Just make sure you only use the HELOC funds as needed — and not for luxury items or nice-to-haves, like you might with a credit card.
"I'd also encourage a consumer not to use HELOC funds to make new, non-essential, splurge purchases," says Kyle Enright, president of Achieve Lending.
Your home value might decline
Finally, there's a chance your home's value might not be as high in a year or so — especially with high mortgage rates eating into homebuying demand. For this reason, Enright says you might want to tap your equity now — before it has a chance to drop.
"Home prices have softened in many markets, and may decline more," Enright says. "By extension, that means home equity isn't likely to grow significantly in the near future for many homeowners. For someone looking to tap home equity, this is a good time to consider doing so, considering that home values might not get much better for the foreseeable future."
Learn more about using a HELOC here.
Compare your options
Not all HELOCs are created equal. Some offer fixed interest rates or have interest-only payments, while others require a balloon payment at the end of your term. So, if you do opt to take out a HELOC, compare several lenders and make sure you understand the fine print. You may also want to consider a home equity loan as an alternative way to borrow.
Keep in mind: HELOCs use your home as collateral, so failing to properly plan and budget for the payments one comes with could mean losing your home to foreclosure.
